In the latest International Copper Study Group (ICSG) data there was a downward revision to H1 12 refined production of almost 100kt and a decline of 1% y/y in July, the first since 2009.

11 Nov 2012

LONDON (Commodity Online): Global refined copper production has been weakening due to a sharp drop in secondary production and technical issues, said Barclays Capital in a commodity snippet.

According to Barclays, market participants used to revising lower their copper mine forecasts should also look further downstream this year. In the latest International Copper Study Group (ICSG) data there was a downward revision to H1 12 refined production of almost 100kt and a decline of 1% y/y in July, the first since 2009. The fall was due to a sharp contraction in secondary in refined output which fell 9% y/y, while the downward revision to historical production was almost all in primary metal.

The only source of growth has been from SXEW, which rose 3% y/y in July and 8% in the year to date. This is important because it means the electrolytic cathode that Chinese mills much prefer is still in tight supply. Refined production has been weak in a number of countries including Brazil, Philippines, Zambia, Peru, Indonesia and Chile. The biggest tonnage losses have been in Chile (almost 90Kt) and Indonesia (52Kt).

In Chile, the Chuquicamata smelter, the largest in the country at around 500Ktpy, was closed for around 50 days due to unscheduled maintenance and there was another closure during July to early September.

In Indonesia production has been affected by less concentrate from Grasberg mine. Brazilian production has dropped to almost zero due to maintenance at the country’s largest refinery, Paranapanema’s 220Ktpy Caraiba.

In Zambia production is still struggling to recover from power issues and stoppages. In a different world such a hefty cut from refined output would have tightened the balance and been bullish for prices. But in today’s market demand has been falling just as fast.

According to the ICSG usage data, which is by no means perfect since it is apparent rather than actual demand, usage is falling in almost half of countries it reports for. There is therefore still a supply-side support for copper prices, though with the market largely in balance this year there is no clear fundamental direction, so we expect prices to remain in this year’s range of $7,200-8,700/t. Heightened political uncertainty, combined with a persistent stock overhang in China, is currently pressuring prices to the lower end of this range, and for a sustained recovery there would have to be a reversal of both issues in our view, Barclays concluded.